HM Treasury and Bank of England announce plans for a digital pound

It would be a new form of sterling which would be used by people and businesses for their routine payments requirements.

The Bank of England (BoE) has launched a consultation on the introduction of its own digital pound, inviting private companies and members of the public to provide feedback regarding its design and implementation.

The consultation, announced in association with HM Treasury, lays out recommendations for a retail central bank digital currency (CBDC) that the BoE thinks would be required in the future.

The Bank said that the purpose of the consultation is to ensure that the public has access to safe money which is simple to use as digitisation extends further into our daily activities.

The consultation also aims to foster private sector "innovation, choice and efficiency in digital payments."

According to BoE, the digital pound would be a new form of sterling, akin to a digital banknote, which would be used by people and businesses for their routine payments requirements.

"It would be used in-store, online and to make payments to family and friends. If introduced, it would exist alongside, and be easily exchangeable with, cash and bank deposits," the Bank noted.

However, BoE clarified that the digital pound cannot be used to earn interest, and there would initially be a cap on the amount that any one person can own.

"We propose a limit of between 10,000 pounds and 20,000 pounds per individual as the appropriate balance between managing risks and supporting wide usability of the digital pound," BoE Deputy Governor Jon Cunliffe said in a speech on Tuesday.

There will be strict requirements for data security and privacy for the digital pound. Holders would have the same amount of privacy as a bank account, and neither the government nor the Bank would have access to their personal information.

The digital pound, unlike cryptoassets and stablecoins, would be issued by the BoE rather than the private sector. This implies that, unlike unbacked cryptoassets, it will have intrinsic value and will not be volatile.

The Bank sees cryptocurrencies like Bitcoin as extremely speculative and not a replacement for so-called fiat currencies, which are issued by central banks.

No final decision has yet been made on whether to proceed with the digital pound. If it does, it is not likely to be released until the end of the decade.

Initially, the digital pound's usage is likely to be small, but if broad acceptance occurs, it could overtake the number of transactions made in cash.

"While cash is here to stay, a digital pound issued and backed by the Bank of England could be a new way to pay that's trusted, accessible and easy to use," Chancellor of Exchequer, Jeremy Hunt, said.

"That's why we want to investigate what is possible first, whilst always making sure we protect financial stability."

Governor of the Bank of England, Andrew Bailey, noted: "As the world around us and the way we pay for things becomes more digitalised, the case for a digital pound in the future continues to grow. A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability."

The consultation is open for comments until 7 June 2023.

Many other countries, including the US, China, Japan, EuroZone and India are also looking at the possibility of launching a CBDC.

Last year, the US Federal Reserve released a study into a digital dollar, although it did not take a firm stand on whether it would issue a CBDC.